On October 1, a day after the Dow rallied 486 points, I suggested that if you need your money in the next six years it might be worth considering making the switch from equities to cash. This comes to mind in looking at the latest news on hedge funds. They control $1.7 trillion distributed among 10,016 firms -- 217 less than three months ago. And based on how much they get paid -- 2% of the assets they manage plus at least 20% of the profits -- they are considered "smart money."

Thanks to the hedge funds' reversal of fortune, the markets are suffering. Why? Because assets are fleeing hedge funds -- down $180 billion. And the profits do not exist -- the funds are down an average of 17.6%. Among these funds, one that stands out is $14 billion SAC Capital Management. I am not sure when SAC did this, however, it is now almost 100% invested in cash. When trying to assess how hard it is to make money in the market, it is worth considering that one of the most successful investors in the world is not willing to put money into stocks.

Why does this matter? Hedge fund money flowing out of investments to meet shareholder redemption demands is behind many of the biggest swings in the financial markets. For instance, the 25% rise in the dollar and the 54% drop in the price of oil since July may be due to hedge funds and other speculators unwinding a formerly profitable trade -- buying oil and shorting the dollar. And the decline in the value -- from 85 cents to 66 cents on the dollar -- of the $500 billion market for leveraged loans -- used to finance LBOs also reflects hedge fund selling.